Indian auto industry eyes eastern Europe

April 23, 2008 11:57 IST

With an eye to the large and growing market for their products, Indian auto component and tyre companies are making a beeline to set shop in Europe (especially Eastern Europe).

Just last month Apollo Tyres announced that it was setting up a euro 200 million green field venture outside Hungary. And Delhi based Amtek Auto will set up a production base which will come in to operation in 2009 in Romania.

But it's not only eastern Europe that is the centre of attraction. Sona Koyo Steering Systems, Bharat Forge, and Sundram Fasteners all have moved in by acquiring companies spread across western Europe.

Of course the key reason is the large market available in Europe. Comprising 27 countries, the Economic Union is expected to grow as more countries like Turkey qualify for membership in the coming years. Currently the EU market is estimated at 13 million passenger cars and 3 million trucks per annum.

"The replacement market is around 250 million tyres a year. Replacement and OEM together adds up to around 300 million passenger car tyres a year," explained Sunam Sarkar, Chief-marketing & sales, Apollo Tyres explaining the reason why their company is moving in into Europe.

Surely size matters. "Europe has the size and scale to become a large market for us and European customers were focused on technology. Today, it's our largest market in the world and also very fast growing market for us", says Amit Kalyani, executive director in Bharat Forge. Bharat Forge derives about 42% its total turnover from its European operations.

Also European auto makers make vehicles which are more expensive than in other markets of the world which makes it an attractive market for auto component manufacturers.

"It is not just the number of vehicles but the value of vehicles that are sold in Europe that is significantly higher than rest of the world," says Kalyani.

Another critical reason why Indian auto companies want to enter eastern Europe is the possibility of labour arbitrage.

"While parts of Europe like the UK and Spain have expensive labour, eastern Europe is cheaper. While they are 3-4 times more than India, they are 5 times less than the rest of Europe," said Amtek Auto.

The company said the quality of engineering skills available in the former Soviet satellite nations is also of top quality. Of course India auto companies are also acquiring companies to get technology. Take the example of Sono Koyo Steering Systems string of European acquisitions in Europe.

"Sona BLW is one of two companies in the world that has precision forged speed gear technology. Besides this Sona BLW has the precision forged bevel gears technology.

We are in a position to supply OEMs in India with components incorporating these technologies in the future," said Surinder Kapur, chairman, Sona Group. But there are challenges too. Cost of doing business is going up at a time when laws on environmental norms are getting more stringent.

"Cost is the biggest challenge. Besides wage costs going up, you have tremendous increase in energy costs, tremendous increase in steel which is global. Costs are a killing factor in Europe," says Kalyani.